November 2, 2022
TFI International Inc.
Key mgmt personnel, O/R targets and M&A expected to be in focus at TFII's upcoming Investor Day
Our view: We expect TFII’s upcoming Investor Day to focus on introducing key management personnel, providing long-term revenue and margin targets, and capital allocation (including M&A). While we would typically be cautious regarding a trucking company going into a potential recession, we see TFII's (structural) margin enhancement opportunity and potential M&A upside as key positives that cause us to remain constructive on the stock.
Key points:
Investor Day. TFII will be hosting an Investor Day in New York on November 10. We expect the objective of the event will be to: 1) introduce TFII’s leadership team; 2) unveil the company's long-term financial targets; and 3) capital allocation.
Introducing division heads to investors. We expect focus on key management personnel at TFII’s upcoming Investor Day. Alain Bedard has long been the face of TFII, and we expect the company will use the event to introduce investors to the key operators of TFII's business segments. See Exhibit 2 for brief bios of presenting executives.
What to expect in terms of targets. We do not expect management to provide 2023 guidance at the Investor Day, but believe they will provide long-term targets related to revenue growth and operating margins. We expect the company to point to an O/R of ~83.7% over a ~3-year time period, which if successful could see EPS contribution of ~$1.40, representing 3-year EPS CAGR of +6%, versus consensus two-year CAGR of +4%. The key driver to this target should be margins in the company's LTL segment. At an LTL O/R of 80% (vs adj. 87% Q3 YTD), we see $1.90 in EPS contribution (or +24% growth off the 2022's current guide of $8.00, all else equal). See Exhibit 3 for an LTL O/R sensitivity analysis.
Capital allocation commentary to focus on potential M&A. We expect management to outline their capital allocation strategy at the upcoming Investor Day. We expect management to discuss their dividend and share repurchase policy, but for focus to be on potential M&A in 2023. We view M&A as a meaningful catalyst for the shares and note that shares have reacted very positively to prior M&A announcements (see Exhibit 6) - and we expect future announcements to be no different.
Our take. The key drivers of TFII stock going forward in our view will be acquisitions, and how the company manages margins in the event of a macro slowdown, in particular in the LTL segment. While we do not generally believe trucking represents an attractive investment ahead of potential recession, we nevertheless view M&A and to a lesser extent robust cash generation as significant offsets, and continue to see value in the shares at current levels.